Supreme Court, Appellate Division, Second Department, New York.
Christopher METZ and John Metz, Appellants,v.Winfield A. GUNTHER and Doris Gunther, Respondents.
July 11, 1961.
Action to foreclose a mortgage on realty. Defendants interposed a counterclaim averring that the loan secured by the mortgage was usurious and that the actual borrower was another endorser. The Supreme Court, Nassau County, Joseph A. Suozzi, J., rendered a judgment dismissing the complaint, declaring loan and notes usurious and directing cancellation of the mortgage and directing plaintiffs to deliver the notes to the defendants. The plaintiffs appealed. The Supreme Court, Appellate Division, held that accommodation endorsers or sureties for repayment of usurious loan would be entitled in equity to cancellation only upon their payment or tender of payment of sum equal to proceeds of loan actually received by borrower, less installment payments made thereon, plus legal interest on balance, and would in no case be entitled to return of notes.
Judgment modified, and as modified, affirmed.
 Usury 82398k82 Most Cited CasesGeneral.
Accommodation endorsers or sureties for repayment of loan were not "borrowers" within purview of statute authorizing borrower under usurious loan to maintain action against lenders without paying or offering to pay interest or principal. General Business Law, § 377.
 Usury 93398k93 Most Cited Cases
Accommodation endorsers or sureties for repayment of usurious loan would be entitled in equity to cancellation of their liability on notes and to cancellation of mortgage only upon their payment or tender of payment of sum equal to proceeds of loan actually received by borrower, less installment payments made thereon, plus legal interest on balance, and would in no case be entitled to return of notes. General Business Law, § 377. **79 Seymour J. Schlesinger, West Hempstead, for appellant.
Dreyer & Traub, Brooklyn, for respondent; Samuel Kirschenbaum, Brooklyn, of counsel.
*575 Before NOLAN, P. J., and BELDOCK, UGHETTA, KLEINFELD and CHRIST, JJ.
MEMORANDUM BY THE COURT.
*574 In an action to foreclose a mortgage on real property and for a deficiency judgment, such mortgage having been given by defendants to plaintiffs as security for the payment of a series of promissory notes aggregating $3,600, executed by a corporation, Gunther-Rider Food Shop, Inc., and endorsed by defendants, in which action the defendants, inter alia, asserted as a separate defense and counterclaim: (a) that plaintiffs exacted from the actual borrower a usurious rate of interest upon the loan which gave rise to the notes and the mortgage, and (b) that the actual borrower was another endorser, one Richard Rider, and not the corporation, the plaintiffs appeal from a judgment of the Supreme Court, Nassau County, entered April 10, 1961 upon the decision of the court after a nonjury trial, dismissing the complaint, declaring the loan and the notes to be usurious, directing the cancellation of the mortgage, and directing plaintiffs to deliver the notes and the mortgage to the defendants.
Judgment modified on the law as follows: (1) by striking out the third drcretal paragraph which directs that the mortgage be canceled and which authorizes the county clerk to cancel it upon his records; (2) by striking out the fourth decretal paragraph which directs the plaintiffs to deliver the notes and the mortgage to the defendants; and (3) by adding **80 a decretal paragraph denying, without prejudice, affirmative relief to the defendants upon their counterclaim of usury.
As so modified, the judgment is affirmed without costs.
The findings of fact contained in the decision or opinion of the Special Term, including the implicit finding that defendants were accommodation endorsers or sureties for the repayment of the loan, are affirmed.
The record discloses ample evidence to sustain the Special Term's findings that the plaintiffs made a loan of only $3,000; that plaintiffs received therefore from the borrower notes aggregating $3,600; that plaintiffs exacted a usurious rate of interest; that such loan was actually made to an individual-- Richard Rider, although nominally the loan was made to a corporation; and that the corporate entity was utilized to conceal the fact that the loan was actually made to said individual. Indeed, as noted by the Special Term in its opinion, the notes and the mortgage were executed and the transaction consummated before the corporation had even been legally organized.
 The defendants, however, in their capacity as accommodation endorsers or sureties for the repayment of the loan, are not borrowers within the purview of section 377 of the General Business Law. Hence, upon proof of the usury they are not entitled, upon their counterclaim, to the unconditional cancellation of the indebtedness and the mortgage. As accommodation endorsers or sureties, they would be entitled in equity to the cancellation of their liability *575 on the notes and to the cancellation of their mortgage only upon their payment or tender of payment of a sum equal to the proceeds of the loan actually received by the borrower, less the installments payments made thereon, plus the legal interest on the balance (cf. Allerton v. Belden, 49 N.Y. 373; Buckingham v. Corning, 91 N.Y. 525, 529-530; Lubetkin v. D. S. Stern & Co., 223 App.Div. 770, 227 N.Y.S. 630). In no event would they be entitled to the return of the notes, since plaintiffs if so advised may pursue their cause of action, if any, on the notes against the actual borrower. The defendants here, not having paid or tendered the payment of said sum to plaintiffs, may get no affirmative relief in this action on their counterclaim of usury.
The case relied on by the Special Term (Kneher v. Greengrass, 232 App.Div. 761, 247 N.Y.S. 723) is distinguishable on the facts. There, a new loan was virtually made and credit extended by the plaintiff directly to the defendant; in effect defendant simply authorized the plaintiff to utilize the loan proceeds and apply them in reduction of her brother's existing indebtedness to the plaintiff, but defendant was the actual borrower. Here, while defendants are related to the individual borrower, nevertheless such individual was the actual borrower; credit was extended to him; and defendants were in fact merely accommodation endorsers or sureties for him.
218 N.Y.S.2d 78, 14 A.D.2d 574
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